Brent hovers at $104 on stimulus hopes, Mideast tensions

July 25, 2012|Reuters

* Hopes rise for more U.S. stimulus to support growth

* U.S. crude stocks post sharp weekly rise - EIA

* Coming up: U.S. weekly jobless claims, Thursday

By Jessica Jaganathan

SINGAPORE, July 26 (Reuters) - Brent hovered above $104 perbarrel on Thursday, with investors anticipating more U.S.stimulus measures to support growth and on fears that tensionsin the Middle East could escalate causing supply concerns.

Data showing the biggest drop in more than a year in U.S.single-family home sales in June, reflecting a sluggish recoveryfor the housing market, reinforced expectations that the FederalReserve would act to adopt more quantitative easing to supportthe economy.

Geopolitical risks also remained a focus amid fears Syriacould resort to chemical weapons in its efforts to suppress the16-month revolt against President Bashar al-Assad.

Brent crude had slipped 24 cents to $104.14 perbarrel by 0255 GMT, while U.S. crude was down 24 cents at$88.73.

"People are looking towards the possibility of quantitativeeasing by U.S. as a weaker dollar will be supportive ofcommodity prices," said Ric Spooner, chief market analyst at CMCMarkets in Sydney. "The risk is to the downside and I think wewill need some sort of catalyst to change the direction of Brentprices, be it either the current demand or supply outlook."

Prices were also supported after European Central BankGoverning Council member Ewald Nowotny said he could see groundsfor giving the euro zone bailout fund a banking license thatwould increase its crisis-fighting firepower.

But ECB President Mario Draghi poured cold water on theidea, while legal problems could also prevent the central bankallowing its European Stability Mechanism rescue fund to tapliquidity operations.

DOWNBEAT GLOBAL OUTLOOK

Adding to the downbeat global economic outlook, SouthKorea's economic growth slowed more than expected in the secondquarter and barely averted a decline, mainly thanks to a tumblein imports, deepening worries about the prolonged crisis inEurope, and slowing growth elsewhere.

In China, nearly a quarter of companies in the country'sexport hub of Guangdong province lost money in the first fivemonths of this year on faltering demand, rising costs andfinancing shortfalls, the official Xinhua News Agency reported.

A spokesman for the Ministry of Industry and InformationTechnology said on Wednesday that about 17 percent of China'sindustrial companies lost money in the first five months of2012, below a 25 percent peak in the 2008/09 global financialcrisis.

But a bright spot was seen with some U.S. manufacturersshaking off weak European demand in the latest quarter, withmakers of products ranging from bulldozers to cars finding soliddemand at home was enough to offset weakness abroad.

Crude imports rose 695,000 barrels per day to 9.59 millionbpd, the highest since July 2011. Crude stocks at the NYMEXCushing hub rose 203,000 barrels to 46.49 million barrels.

Adding to geopolitical tension, Western powers have beencalling for Syrian President Bashar al-Assad to be removed frompower in the wake of a revolt against his regime, but they nowfear he will fight to the end, raising the risk of sectarianwarfare spreading across one of the world's most volatileregions.

Syria confirmed on Monday that it had chemical and biologicalweapons and said it would use them against external threats,prompting warnings from Washington and Moscow against using thearsenal.